Tuesday, June 22, 2010

Blame It on the Kids (or the Lack Thereof)

A few studies that made news several years ago noted that many baby boomers expected to retire later in life than their parents and grandparents. But it was also noted that retiring boomers would be better off during their golden years than their parents were. One study found that after a half century of declining retirement age, the trend had reversed.

While researchers have been puzzling about the causes of the increasing retirement age, the explanation may actually be quite simple: Baby boomers tended to have fewer children than their parents did.

A century ago, 30.1 babies were born per 1,000 people in the U.S. That rate dropped to 18.7 during the Great Depression. (Birth rates generally trend lower during economic difficulties.) But after World War II, the rate surged, staying in the mid 20s during the 1950s, and slowly declining to below 20 in 1965 at the end of the boom. (See Infoplease site.)

Although boomers have generally been better off throughout their lives than their parents were, they opted for fewer children. And their children have continued that trend. Concern was sounded when the U.S. birth rate dropped below 14 per 1,000 for the first time in 2002. (See About.com article.) While there was an unprecedented surge in the rate in 2007, it dropped off as the recession took hold in 2008. (See NY Times article.)

The advent of widely available birth control permitted baby boomers more flexibility in determining family size than any previous generation had experienced. Increasing affluence and increasing wages for women helped fuel an increase in the divorce rate along with a decrease in the marriage rate and an increase in the average marriage age. The resulting increase in shorter-term child bearing relationships also contributed to the declining birth rate.

Affluence has been another key factor. As boomers’ parents became more prosperous, they tended to spend more on their children. Boomers took this trend to new heights with their own children. Spending on children has become such a status symbol that an entire child-focused marketing industry has grown. Parents use so many resources per child that it limits the number of children a family can afford.

Overall life expectancy has steadily increased during the past half century, so that the population of people beyond normal child bearing years is higher than ever, and climbing. The increasing median age means that even with increases in the raw number of children being born, the rate of births per thousand is still declining.

The point is that, despite ups and downs, the overall birth rate trend has been significantly downward since the the baby boom. This has a generationally delayed affect on retirement age.

In effect, the parents and grandparents of baby boomers were able to retire at younger ages because there was a huge supply of younger workers surging into the labor market. To some extent, these older workers were pushed out of the market to make way for the burgeoning young generation they spawned.

Another phenomenon of the baby boom generation was the trend toward increased preparation time to enter the job market. Increasing affluence played a role in this, but so did demographics. With more workers entering the market, boomers needed more ways to distinguish themselves to compete for jobs. This trend has continued into subsequent generations so that workers are entering the job market at later ages than their parents did.

The upshot is that as baby boomers eye retirement, there are fewer new job market entrants. This creates less pressure for older workers to retire, as well as fewer workers to fund Social Security pensions that many retirees are depending on to help fund living expenses.

Health conditions play a role in all of this as well. Better lifelong affluence means that boomers have had better health care and nutrition than any previous generation. Since they are healthier (or can be kept healthier) than their parents were at the same age, they are more capable of continuing to work than their parents were. Being healthier means that boomers need to plan for longer retirement times as well. That means more savings. And that means more work.

Increased affluence and expanded options are causing baby boomers to work to older ages than the previous two generations did. Subsequent generations can expect to work to even later points in life as they produce fewer children to replace them in the job market and as workers become productive in the market at older ages than their parents did. Hopefully they’ll be healthy enough to work long enough to enjoy some kind of retirement.

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